Documentos de Académico
Documentos de Profesional
Documentos de Cultura
2d 1440
68 A.F.T.R.2d 91-5005, 93-1 USTC P 50,074
I.
2
In early 1986, appellant Schmidt devised and promoted a plan to sell putative
trusts known as UBOs and sold them, for commissions, to others. Schmidt
described the UBO to potential customers as
a3 domestic trust wherein the trustee or the individual for whose benefit truly [it] is
set up for, has total control, whether it's real estate, real property, personal property,
he can buy and sell as fast as he can control it normally as an individual.
4
He's got total control. He still has the ability to defray all the taxes down to an
absolute zero * * *.
Working in conjunction with Schmidt, appellants Lewis and Dunlap sold UBOs
to at least 20 investors at a cost of between $3500 and $5000 apiece, assuring
such investors that purchasing a UBO would permit them to pay whatever taxes
they wanted to pay.
In a typical UBO scheme, an investor would name himself trustee of his own
UBO. Appellants advised the trustee that he could transfer to a UBO all
earnings (including income normally reported on a W-2 or 1099 form as
individual income) and assets (including real property, automobiles and
personal wardrobe). While ownership of such earnings and assets was
apparently transferred to the UBO, their control remained in the hands of the
investor as "trustee." Appellants instructed UBO owners to take an inventory of
personal property and to keep minutes documenting all UBO expenses,
including purely personal expenses for household items, car repairs, groceries,
clothing, and entertainment, assuring the investors that all such expenses
constituted proper UBO business deductions which could legitimately be used
to reduce taxable income earned by the UBO. Appellants also encouraged UBO
purchasers to take the original cost of UBOs as a deduction on their individual
returns.
7
Most problematic was the advice appellants gave UBO investors regarding
compliance with the federal income tax laws. Based upon such advice, UBO
investors who filed individual income tax returns (Forms 1040) omitted
substantial amounts of income, including W-2 income, that appellants
instructed investors to consider as UBO income. Although the income reported
generated tax, that tax was typically less than the amount withheld, and refunds
were claimed. UBO investors also submitted federal fiduciary returns (Forms
1041) listing income that, in fact, did not belong beneficially to the UBOs and
then claimed deductions which eliminated or drastically reduced the taxes due.
The purported deductions included expenses for home improvements,
groceries, clothing, entertainment, and other purely personal living expenses, as
well as deductions for income distributions where the investor continued to
control the putatively distributed funds.
10
appellant Lewis with willfully aiding and assisting the preparation of false tax
returns in violation of 26 U.S.C. Sec. 7206(2). Counts 7 through 10 charged
Lewis with willfully failing to file income tax returns for taxable years 1983,
1984, 1985, and 1986, in violation of 26 U.S.C. Sec. 7203. Count 11 charged
all appellants with conspiring to commit witness tampering in violation of 18
U.S.C. Sec. 371, 1512(b), and 2. Counts 12 through 14 charged Lewis and
Schmidt, and Counts 15 through 17 charged Dunlap and Schmidt, with
attempting corruptly to influence grand jury witnesses, in violation of 18 U.S.C.
Sec. 371, 1512(b), and 2.
11
12
The jury returned guilty verdicts on Counts 1 through 16 and acquitted Dunlap
and Schmidt on Count 17.
13
On April 12, 1990, the District Court sentenced Schmidt to serve one hundred
and eight (108) months, to be followed by a three year term of supervised
release, and to pay a $30,000 fine and a $350 special assessment. Lewis was
sentenced to serve fiftyseven (57) months on Counts 1, 3, 4, 6, 11, 12, 13, and
14 (the Guideline counts) and a consecutive three-year term on Counts 2, 5, 7,
8, 9, and 10 (the non-Guideline counts), to be followed by a three-year term of
supervised release, and to pay a $20,000 fine and a special assessment of $700.
Dunlap was sentenced to serve eighty-four (84) months, to be followed by a
three-year term of supervised release, and to pay a $30,000 fine and a special
assessment of $200. Each appellant filed a timely notice of appeal.
14
The points of error raised on appeal are that 1) the district court erred by
denying the motion to dismiss the indictment for alleged prosecutorial
misconduct, 2) Counts 1 through 6 of the indictment were fatally defective
because they were labelled as sham organizations though they possessed some
defensible purposes, 3) the district court erred in refusing to give appellants'
requested instruction concerning the definition of a sham, 4) Counts 1 through 6
of the indictment were based on law that was vague or highly debatable, 5) the
district court erred by refusing to give appellants' proposed jury instruction
concerning reliance on experts, 6) the district court erred by refusing to instruct
the jury on selective prosecution, 7) the district court misapplied section 2T1.3
of the Sentencing Guidelines in determining the base offense level for the
appellants' conspiracy convictions and in determining a two point enhancement
for Dunlap, and 8) there was insufficient evidence to support the verdicts on
Counts 11 through 16.
II.
15
Throughout a number of the claimed errors there runs a common thread. Two
cases involving civil aspects where existence, "sham or no," is a question of fact
which the appellants seek to build on, ignoring that a criminal case such as the
one with which we here deal turns not on the characterization of the UBO but
on whether, sham or not, the UBO was used to conceal income and assets in a
fraudulent manner.
Appellants have begun by contending that the district court erred in refusing to
dismiss the indictment on the ground of prosecutorial misconduct. Specifically,
appellants have argued that the question of whether a UBO constitutes a sham
transaction is a question of fact, citing Frank Lyon Co. v. United States, 435
U.S. 561, 98 S.Ct. 1291, 55 L.Ed.2d 550 (1978) and Rice's Toyota World, Inc.
v. Commissioner, 752 F.2d 89 (4th Cir.1985), and that the prosecutor took such
finding of fact away from the grand jury through conclusory statements before
several witnesses to the effect that the alleged transactions in the instant case
were shams as a matter of law.
18
19
A. I've just got to the point where I don't know--I don't know whether it's legal
or not, to tell you the truth.
20
21
A. That's what I asked Mr. Horowitz [an attorney], and he said right off the top
of his head he didn't think it was, but he could not say for sure.
22
Q. I'll tell you that not just off the top of my head but according to criminal
cases and general cases for many years on the nature of trusts, Number One,
the trust instrument itself is invalid on its face, and any competent lawyer will
tell you that, because it does not specify a beneficiary.
23
Number
Two, these types of trusts where you supposedly transfer your corpus into
the trust and keep total dominion and control have been recognized as sham trusts
for over 50 years. That means that were you to be audited yourself, according to the
cases, you could be assessed not just back taxes for any taxes you hadn't paid,
because that's all your income, it's not trust income, it's your income and your
husband's income, you'd be assessed a negligent penalty, and that's been upheld in a
number of cases.
24 investors have been prosecuted successfully for joining this trust. That's
Also,
prosecution, that's criminal. There's several recent cases about it, so the answer to
your question is as a matter of law it is not legal.
25 for the benefit of the grand jury, I'll say I'm explaining about criminal
And
prosecution to make it clear what the law is. That does not say that these particular
defendants necessarily, or proposed defendants, have committed any wrongdoing.
You have to look at the independent evidence, which we'll present to you and have
been presenting to you in this grand jury. Does this answer your question about the
legality, Ma'am?
A. (Nodded head up and down.)
26
27
Appellants further have attacked the prosecution's statement of the law before
witness Fairless as post-dating the actual commission of the offenses,
concluding that the appellants themselves could not possibly have been on
notice as to the illegality of the UBO transactions.1 Finally, appellants have
emphasized the fact that the prosecutor failed to mention the Frank Lyon case
during his final request for instructions as further indication of his intent to take
the factual question of a sham transaction vel non from the jury, leaving the
jurors to decide only whether appellants had acted in concert.
28
because they were not "shaped solely by tax avoidance considerations." Rice's
Toyota World, Inc., 752 F.2d at 92; Frank Lyon, 435 U.S. at 583-84, 98 S.Ct. at
1303. At least nine witnesses testified that their primary motivations for
purchasing the UBO's included protection of assets from creditors, privacy, and
estate planning considerations. In view of such evidence, appellants contended
that it would be impossible to perceive the prosecutor's usurpation of the grand
jury's role as harmless error, and that such usurpation adversely affected their
right to a fair trial, citing Bank of Nova Scotia v. United States, 487 U.S. 250,
108 S.Ct. 2369, 101 L.Ed.2d 228 (1988) and United States v. Mechanik, 475
U.S. 66, 106 S.Ct. 938, 89 L.Ed.2d 50 (1986).
29
The fundamental flaw in the appellant's line of reasoning has been their
misapprehension of the nature of the sham at issue by relying inordinately on
Frank Lyon.
30
In Frank Lyon, the question presented focused on the taxpayer's ability to claim
deductions in connection with a multiple party sale-and-leaseback transaction.
The ability of the taxpayer to take the deductions depended in turn upon the
Court's determination of the transaction itself as a sham. In the instant case,
however, the appellants were charged with conspiring to defraud the United
States "by using sham trust entities known as UBO's to conceal taxable assets
from the [IRS]." And in order to indict and try the appellants on such a charge,
it was not necessary for the grand jury to determine whether the UBOs
constituted sham transactions under Frank Lyon. Whether a UBO itself would
be held to be a sham is of no moment; here it was the fact that the UBOs,
whether in other respects sham entities or not, were used to conceal income and
assets in a fraudulent manner which made the scheme illegal.
31
The important distinction between civil and criminal tax cases concerning the
key element to be focused upon is compellingly set out in United States v.
Miller, 545 F.2d 1204, 1214 (9th Cir.1976), cert. denied, 430 U.S. 930, 97 S.Ct.
1549, 51 L.Ed.2d 774 (1977). There the Ninth Circuit noted,
32 civil tax cases the purpose is tax collection and the key issue is the establishment
In
of the amount of tax owed by the taxpayer. In a criminal tax proceeding the concern
is not over the type or the specific amount of the tax which the defendant has
evaded, but whether he has wilfully attempted to evade the payment or assessment of
a tax.... The difficulty in automatically applying the constructive distribution rules to
this case is that it completely ignores one essential element of the crime charged: the
willful intent to evade taxes, and concentrates solely on the issue of the nature of the
funds diverted. That latter aspect is not the important element. Where the taxpayer
has sought to conceal income by filing a false return, he has violated the tax evasion
statutes. It does not matter that that amount could have somehow been made nontaxable if the taxpayer had proceeded on a different course.
33
34
Moreover, the statements made by the prosecutor before the three grand jury
witnesses did not amount to taking the sham question out of the jury's hands. In
his colloquy with Joyce Williams, the prosecutor was careful to remind the
grand jury that he was only stating the law in response to various facts and
circumstances offered by the witnesses, and that the task of applying the law so
stated to the evidence presented as to the appellants remained with the grand
jury.2
37
Thus, because the indictment itself states that the appellants 1) encouraged
UBO investors to place all of their assets into the UBOs and outside the reach
of potential creditors, including the IRS; 2) represented to potential investors
that the UBOs would "assure total privacy"; and 3) told potential investors that
they would receive "23% interest" from the purchase of certificates of deposit,
the counts should be dismissed.3 See, e.g., Current v. United States, 287 F.2d
268, 269-70 (9th Cir.1961).
38
L.Ed.2d 96 (1979) (each count of indictment must stand or fall alone, except
insofar as the allegations of another count are incorporated by reference).
39
The conspiracy count, Count 1, on the other hand, was not defective even
assuming it did allege that the UBOs had some business purpose. As we have
previously pointed out, an agreement to conceal income and assets from the
IRS constitutes a conspiracy to defraud the United States whether or not the
entities used are shams.
40
The indictment alleged that the appellants represented to potential investors that
a legitimate business purpose existed. "Such representations could not be
characterized as an objective determination that a valid business purpose
existed." United States v. Lewis, 730 F.Supp. 691, 695 (W.D.N.C.1990). Thus
we find no fatal flaw in the language of the indictment as to Counts 1 through 6.
Yet again, appellants have invoked their Frank Lyon/Rice's Toyota World
interpretation of "sham" to insist that the district court erred in not giving a jury
instruction to that effect as to the conspiracy count (Count 1), but chose instead
to give the following instruction:
43
Now, when we look at the object of the conspiracy to obstruct the collection of
Federal income taxes, using and causing to be used sham trust entities known as
UBOs to conceal taxable income and assets from the IRS, as is stated on page 2
of paragraph eight ... the utilization of numerous sham trusts as stated in
paragraph nine and on page 2, and the promotion and selling of [a] sham trust
scheme as a device to allow individuals not only to evade Federal income tax
liabilities but also to escape detection for so doing as stated in paragraph 29 on
page 8.
44
Simply put, if after considering all the evidence you find the Government has
proved beyond a reasonable doubt that the unincorporated business
organization trust being sold, promoted, used and caused to be used by the
defendants were a scheme to be used by the individuals as a device for evasion
of their income tax liabilities and were not for legitimate purposes as contended
by the defendants, then you will have found that the use of the UBOs as
promoted and sold by the defendants were a sham used for the object and as a
means and methods of impeding and obstructing the Internal Revenue Service
in the ascertainment and collection of Federal income taxes.
45
(Emphasis added.) We have emphasized the final portion of the district court's
45
(Emphasis added.) We have emphasized the final portion of the district court's
instruction on the definition of "sham" to highlight again the distinction
between the UBO as sham (Frank Lyon ) and the use of the UBO as sham (the
instant case). Giving no consideration to such an important distinction, the
appellants have continued to urge that the instruction as given was flawed
because it 1) made no reference to a non-business purpose and 2) made no
reference to economic substance, the two prongs of the Frank Lyon "sham" test.
46
47
Had appellants chosen to quote the remainder of the district court's instruction
regarding how the UBO's were used illegally, their Frank Lyon argument would
all but vanish. The district court cogently set forth the two essential elements of
tax evasion schemes: 1) whether the taxpayer intended to escape taxes or wages
on his earnings by assigning, transferring, selling, or giving away some or all of
his future earnings to another individual or entity, and 2) whether the taxpayer
continued to maintain dominion and control over his assets after transfer to such
"entity." It was a violation of well-established principles of tax law that
provided the basis of appellants' convictions, rendering inappropriate the
appellants' proposed jury instruction.
Here appellants sought to depend on United States v. Critzer, 498 F.2d 1160
(4th Cir.1974), in which we held that "when [a] law is vague or highly
debatable, a defendant--actually or imputedly--lacks the requisite intent to
violate it." Id. at 1162.
50
and the deduction for ordinary and necessary business expenses, id. at Sec. 162.
51
Here again, appellants have sought to divert attention away from the wellsettled law of what constitutes tax evasion and into the misty realm of UBOs
and deductions against personal income. By properly focusing on pertinent
tenets of tax law--that earned income is taxable to those who earn it and that
dominion and control over property, rather than documentary title, determines
to whom the income from that property is taxable--one discovers a number of
cases. See Holman v. Holman, 728 F.2d 462 (10th Cir.1984) (assignment of
income doctrine and grantor trust provisions applied to hold trusts mere shams
for tax avoidance purposes); Hanson v. Commissioner, 696 F.2d 1232 (9th
Cir.1983) (same); Schulz v. Commissioner, 686 F.2d 490 (7th Cir.1982)
(same); Vnuk v. Commissioner, 621 F.2d 1318 (8th Cir.1980) (same);
Wesenberg v. Commissioner, 69 T.C. 1005 (1978) (same); Zmuda v.
Commissioner, 731 F.2d 1417 (9th Cir.1984) (investors, as trustees, had
complete control over the income-producing property of the trusts).4 Hence,
contentions of vagueness and debatability simply do not hold up.
Moving from the attempt analytically to make controlling the Frank Lyon
definition of sham, appellants next have contended that the district court erred
in declining to submit a jury instruction regarding the defense of reliance upon
certain experts. Each appellant sought an instruction whereby the jury could not
find willful wrongdoing if it found that each had acted upon the basis of advice
from an expert or experts in the tax field. The instructions were denied.
54
Appellant Dunlap testified at trial that he had solicited and relied upon the
advice of an accountant named Elizabeth Austin in the preparation of his 1987
trust return and the trust returns of his sisters, his brother, and Daniel Smith, all
individuals to whom he had sold UBOs.
55
Schmidt and Lewis made similar contentions of reliance upon accountants and
attorneys in their own testimony. Lewis claimed that he sought the advice of
Darlene Baker, his tax preparer, and the advice of attorneys at the legal
department for the Amway Corporation, for whom Lewis was a distributor.
Baker testified that, in 1987, she researched the issue of whether personal
expenses were deductible on a trust tax return, and concluded that they were.
Elizabeth Hines and Richard Waak, members of Amway's legal department,
testified that they corresponded with Lewis concerning his request to transfer
his Amway distributorship into a UBO. They approved the transfer, but
admitted that they did not review in depth the legality of the use of the UBO
itself.
56
Schmidt contended that the evidence shows that he consulted several attorneys
before he began promoting UBOs.
57
Returning again to the jury instruction standard, a district court may not refuse
a theory of defense instruction if such instruction has an evidentiary foundation
and is an accurate statement of the law. Dornhofer, 859 F.2d at 1199. As to the
law itself, the essential elements of a reliance defense are 1) full disclosure of
all pertinent facts to an expert and 2) good faith reliance on the expert's advice.
United States v. Miller, 658 F.2d 235, 237 (4th Cir.1981).
58
Here the district court properly refused the requested instructions in the face of
inadequate evidentiary support. Dunlap admitted that he relied upon Austin
only as to the legality of certain deductions, not upon the essential questions of
what income could be assigned to a UBO or whether a trustee could maintain
control and dominion over assets held in trust and not invalidate the trust for tax
purposes. In addition, Dunlap sought Austin's advice only after he had bought a
UBO and had sold UBOs to others. Thus, there was no evidence that he relied
upon her advice regarding his future conduct. See United States v. Polytarides,
584 F.2d 1350, 1352-1353 (4th Cir.1978) (instruction properly refused because
there was no evidence that the defendant sought advice on the lawfulness of
possible future conduct).
59
60
As for Schmidt, what little evidence there is in the record of consultations with
attorneys shows only that he spurned such advice.
61
The willfulness and reliance instructions actually given by the district court-instructions in fact requested by appellants--were more suitably founded upon
the evidence presented than the ones which the appellants claim, on appeal,
they sought.
F. Selective Prosecution
62
Appellants Dunlap and Lewis next asserted that the district court erred in
refusing to instruct the jury on their claim of selective prosecution.
63
64
Dunlap and Lewis have contended that they offered evidence sufficient to
satisfy both prongs of the Greenwood test. Arguably, both were prosecuted
while at least five of each's peers were not. Each then has claimed that views
they had made known regarding government corruption and the voluntary
nature of compliance with the tax laws were protected speech and were known
to the government when it made its decision to go forward with the
prosecution.
65
We need not linger long in assessing the merits of the claim. It is well-settled
that "[d]efenses and objections based on defects in the institution of the
prosecution" must be raised prior to trial. United States v. Taylor, 562 F.2d
1345, 1356 (2d Cir.), cert. denied sub nom, Salley v. United States, 432 U.S.
909, 97 S.Ct. 2958, 53 L.Ed.2d 1083 (1977) (refusing to hear a selective
prosecution claim raised for the first time on appeal); Fed.R.Crim.P. 12(b)(1).
Lewis' and Dunlap's failure to comply with the requirements of Rule 12(b)(1)5
constitutes a waiver by them of any claim that the prosecution was instituted
for discriminatory reasons. United States v. Aguilar, 883 F.2d 662, 705 n. 44
(9th Cir.1989), cert. denied, --- U.S. ----, 111 S.Ct. 751, 112 L.Ed.2d 771
(1991); United States v. Berrigan, 482 F.2d 171, 174-176 (3d Cir.1973).
Under Section 2T1.9(a), the base offense level is either 10 or the level
determined under Sections 2T1.1 or 2T1.3 if either is applicable and results in a
base offense level greater than 10. Section 2T1.1 is inapplicable because none
of the appellants was charged under 26 U.S.C. Sec. 7201. Section 2T1.3
provides, in pertinent part,
74
At sentencing, the only figure the government presented to the district court
was the total amount of all of the gross income that all of the UBO purchasers
had listed on their trust tax returns: $1,144,593.00. The district court took 28%
of that figure to arrive at an offense level of 14 from the Tax Table, Section
2T4.1.
75
Appellants strenuously contend that the "tax loss" does not represent the total
gross income reported because the bulk of that income was not understated. In
other words, the UBO purchasers did not understate all of their income simply
by reporting it on a trust return rather than an individual income tax return. In
appellants' view, the understated income would be that portion of their gross
The government has replied that all of the gross income reported on the trust
returns was properly treated as understated income, because, if, as has been
shown, the use of the trusts was a sham, then the investors had no legitimate
right to report any of their income on trust returns. In support of its position, the
government relies solely upon a rather broad policy statement contained in the
Introductory Commentary to Part T of the Guidelines:
77 criminal tax laws are designed to protect the public interest in preserving the
The
integrity of the nation's tax system. Criminal tax prosecutions serve to punish the
violator and promote respect for the tax laws. Because of the limited number of
criminal tax prosecutions relative to the estimated incidence of such violations,
deterring others from violating the tax laws is a primary consideration underlying
these guidelines. Recognition that the sentence for a criminal tax case will be
commensurate with gravity of the offense should act as a deterrent to would-be
violators.
78
With such policy as backdrop, the government has urged that 1) to allow
appellants to offset understated individual income with falsely claimed, largely
untaxed trust income would give an undue degree of approval to the very
scheme for which they were convicted and 2) to treat income reported by UBO
investors on trust returns as if it had been correctly reported on individual
returns would thus subvert the deterrent purpose of the Guidelines set out
above.
79
claim to all of the income reported on the trust tax returns. In our view, then,
the understated gross income here is represented only by non-legitimate
deductions and any income "distributed" off-shore to FSBL. We remand the
case for a recalculation of all of the appellants' base offense levels consistent
with our view of the actual tax loss sustained by the government.
80
81
Dunlap has argued, and the government concedes, that the district court erred in
enhancing his base offense level by two points pursuant to Section 2T1.3(b).
That section provides, in pertinent part,
(Emphasis added.) During the sentencing hearing, the case agent testified that
Dunlap received no more than $8,000 in income from the sale of UBOs in
1987, no more than $2,000 in 1988, and conceded that if the relevant
sentencing guidelines provided for an enhancement based upon the receipt of
$10,000 in income per year from the sale of UBOs, such threshold was not met.
Because the government concedes that no evidence exists to the contrary, it too
concludes that the case should be remanded to resentence Dunlap. Thus, in
addition to remand for recalculation of all appellants' base offense levels, the
case is remanded for a recalculation of Dunlap's offense level absent the twolevel enhancement under Section 2T1.3(b).
87
Appellants have asserted that Sec. 1512 limits conduct which may serve as the
basis for prosecution to tampering by specific means such as by use or
The record reveals otherwise. Schmidt wrote letters dated September 23, 1988
to witnesses Myra Poplin, Margaret Stafford, and Frank Moore after he learned
that each had been served with a grand jury subpoena. The letters instructed the
witnesses about a purported "fiduciary relationship" each of them was "under"
to FSBL and reminded them of the "written instructions from FSBL not to
divulge any information regarding the assets or financial affairs of the trust to
any third parties." In addition to the letters, Lewis spoke with each of the three
over the phone, reminding each that he or she could exercise his or her Fifth
Amendment rights, advising that each should send a copy of Schmidt's
September 23 letter to the Assistant United States Attorney on the
investigation, and urging that each should thereafter refer any inquiries to
attorney Robert Keyser. Keyser was in fact unaware of the letters or of the use
of his name by Schmidt.
89
There was also substantial evidence from which the jury could infer that
Dunlap and Schmidt had misled Joyce Williams and Peggy Dunlap, appellant
Dunlap's sister, regarding their obligation to testify and produce documents.
Williams called appellant Dunlap, her brother, after receiving her first grand
jury subpoena on February 6, 1989. She failed to appear on that date. She then
asked for and was given a letter conferring "informal immunity" dated April 6,
1989. She appeared before the grand jury on the same day but she did not bring
the documents listed in the subpoena with her and refused to testify.
90
On May 22, 1989, Williams was served with another subpoena to produce
documents relating to her UBO and to testify on June 7, 1989. Declining to
produce the requested documents, Williams instead sent the grand jury
foreperson a document entitled "Answer to Subpoena/Purgation by Oath," 6
which stated that she did not have any of the requested documents, including
any relating to her UBO. She had, in fact, sent all of the documents to appellant
Schmidt after the investigation began. Before the grand jury, Williams testified
that appellant Dunlap had told her she would not have to testify if she submitted
On June 7, 1989, the district court ordered Williams to appear and show cause
why she should not be held in contempt for failure to appear before the grand
jury. Shortly thereafter, Williams received a letter from appellant Schmidt
dated June 10, 1989, purportedly acknowledging receipt, on behalf of FSBL, of
Williams' UBO documents in early December 1988. On August 7, 1989, the
district court issued an order compelling Williams to testify. She then told
appellant Dunlap she needed the documents she had sent to appellant Schmidt
back before the August grand jury session. The documents were returned to her
after Dunlap called Schmidt, and ultimately, were produced to the grand jury.
92
On March 29, 1989, Peggy Dunlap received a subpoena to testify in April 1989.
She refused to testify and was subpoenaed to testify again in June 1989. She
spoke to her brother, appellant Dunlap, and to Schmidt after receiving the
second subpoena. On Schmidt's advice, Peggy Dunlap submitted a "Purgation
of Oath" form rather than appearing before the grand jury in June. On June 7,
1989, the district court ordered Peggy Dunlap to appear and to show cause why
she should not be held in contempt for failing to appear before the grand jury.
Shortly thereafter, she, like Williams, received a letter from Schmidt dated June
10, 1989, purportedly acknowledging receipt, on behalf of FSBL, of documents
relating to her UBO in early April 1989. The documents were returned to her
and were produced to the grand jury after her brother called Schmidt.
93
Having heard such evidence, especially when the evidence is viewed in a light
most favorable to the government, the jury, as rational fact-finder, could clearly
have found guilt beyond a reasonable doubt.
III.
94
In conclusion, all aspects of the district court's judgment are affirmed, with the
exception of appellants' sentences, which we vacate. The case is remanded for
resentencing in accordance with this opinion.
95
96
97
I concur in and join all parts of the majority opinion except Part II(G). The
majority permits the appellants to profit from their own wrongdoing by
offsetting unreported individual income with income fraudulently and illegally
reported on the trust returns. The appellants encouraged investors to hide their
personal income behind fictional business entities, argue on this appeal that the
entities were not fictions, and yet have convinced the majority to treat them as
fictional for purposes of sentencing.
98
99 order to gauge the seriousness of these offenses, the guidelines establish a rule for
In
determining a "tax loss" based on the nature and magnitude of the false statements
made. Use of this approach also avoids complex problems of proof and invasion of
privacy when returns of persons other than the defendant and co-defendants are
involved.
100 Commentary, U.S.S.G. Sec. 2T1.3.
101 The commentary to U.S.S.G. Sec. 2T1.9 also notes that "[a tax fraud
conspiracy] typically is complex and may be far-reaching, making it quite
difficult to evaluate the extent of the revenue loss caused."
102 The Commission's concerns are strikingly illustrated by this case. The
appellants sold at least twenty UBOs, but the "tax loss" calculation used by the
district court was based on only nine investors' returns. The extent of the
revenue loss may never be known with any degree of precision. The majority
opinion, aside from its rewarding the defendants the fruits of the fraud, creates
the problems of proof the guidelines meant to avoid.
103 I respectfully dissent.
The prosecutor cited United States v. Brodie, 858 F.2d 492 (9th Cir.1988) and
United States v. Krall, 835 F.2d 711 (8th Cir.1988). Each of the UBOs at issue
was sold before those opinions were decided
The appellants have contended that the indictment failed to allege necessarily
unlawful conduct, and indeed actually alleged lawful activity
A purgatory oath is
[a]n oath by which a person purges or clears himself from presumptions,
charges or suspicions standing against him, or from a contempt.
Black's Law Dictionary 966 (5th ed. 1979) (emphasis in original).